Work Health Safety Act and the risks for directors

May 2014 | EXPERT BRIEFING | RISK MANAGEMENT

financierworldwide.com

As a result of the recent implementation of new legislation, many Australian businesses are unaware of new work safety provisions and are potentially exposing themselves to personal risk in their everyday dealings.

The Work Health Safety Act (WHS) was introduced on 1 January 2012 to harmonise the existing state Occupational Health and Safety (OH&S) legislation in order to provide a nationally consistent set of laws and regulations covering health and safety in the workplace. Moving to a harmonised regime necessitated a transitional period in Australian states, however two years after the introduction of each WHS Act most of these transitional arrangements have now expired.

The new WHS legislation has brought about a number of changes that affect employers, persons conducting a business or undertaking (PCBUs) and employees. Understanding and complying with these changes is crucial for avoiding adverse risk in the workplace along with significant penalties and fines.

What are some of the new WHS requirements?

Due diligence requirements

New WHS obligations place additional responsibilities on PCBUs to ensure the business meets its duty of care requirements. Specifically, directors and PCBUs are now required to exercise a greater range of due diligence, including obligations to: (i) acquire and update their knowledge of health and safety matters; (ii) understand the operations being carried out by the PCBU in which they are employed, as well as the hazards and risks associated with the operations; (iii) monitor information on incidents, hazards and risks; (iv) ensure that the PCBU has, and uses, appropriate resources and processes to eliminate or minimise health and safety risks arising from work being done; (v) verify the use of processes and resources to minimise risks to work, health and safety; (vi) ensure work, health and safety and legal compliance; (vii) facilitate consultation regarding safety issues; and (viii) ensure that the PCBU has, and uses, processes for complying with duties or obligations under the WHS Act.

Definition of a worker

The increase in PCBU obligations has also exposed directors to a broader range of potential breaches with respect to the definition of a worker. This definition has been amended to include contractors and any other individuals, including volunteers, who carry out work in any capacity; further expanding the area of necessary cover.

A recent case (Baiada Poultry Pty Ltd v The Queen [2012] HCA 14) involving the death of a contractor’s employee, saw the principal prosecuted, and initially found liable, for the incident. This decision was ultimately overturned by the High Court of Australia as it was deemed that the work was carried out by experienced professionals, who themselves determined how to safely perform the work. This case highlighted that use of contractors does not automatically absolve directors from their WHS obligations as it is still necessary to exercise ‘reasonable and practicable’ steps to mitigate WHS risks.

What are the consequences for directors if they breach their WHS obligations?

Compliance with the new Act is important, not only for the purpose of maintaining an appropriate duty of care for employees, but also because the penalties associated with non-compliance can be severe. The highest level of penalty carries a $3m fine for a body corporate or $600,000 and/or five year imprisonment term for a PCBU.

What are some of the common issues and pitfalls seen from a WHS perspective when reviewing corporates?

The most common WHS problem encountered by professionals reviewing corporate safety is a disconnect between what directors believe to be occurring and the truth of what is actually taking place at the ‘coalface’. While appropriate safety measures may be implemented by those who are closest to the action, for the purposes of directors’ duties and obligations, the directors themselves must be fully informed about the process. Directors must have a solid communication link with the safety processes under their command and it is not enough to rely on the fact that there is a ‘safety system’ in place in circumstances where those processes are not being adhered to.

Practically, this means that directors must be aware of the indicators for measuring performance and form a view as to whether the system is effective or not. There must be regular reporting by the executive team as to safety and performance and directors must be satisfied that the information being provided is valid and that they are comfortable with the safety status of the organisation.

To achieve this high standard of due diligence requires persistent care and examination.

Considerations for directors reviewing WHS practices include the following: (i) maintain an adequate and current knowledge base; (ii) respond to potential hazards in a timely manner; (iii) make sure there is an effective WHS management system in place; (iv) set goals to improve WHS performance and review regularly; (v) have metrics (measurable data) in place to monitor performance; (vi) demonstrate active and visible leadership in WHS management; (vii) be familiar with your highest WHS risks – the ‘Top 5’; (viii) include WHS as the first item on the agenda for your directors meetings; (ix) request WHS reports from your business unit managers; (x) include WHS as a KPI in all position descriptions and performance reviews; (xi) include WHS in strategy and budget processes; and (xii) ensure that the business is adequately resourced to manage WHS.

John Melluish is a partner and Nick Haslam is a senior manager at Ferrier Hodgson. Mr Melluish can be contacted on +61 2 9286 9963 or by email: john.melluish@fh.com.au. Mr Haslam can be contacted on +61 2 9286 9852 or by email: nick.haslam@fh.com.au.